Economic Week in Review
September 7, 2007
by Cheryl Anderson, Stewart Title

Jobs take a tumble
The continuing slump in the housing market appears to be affecting the broader economy, as a closely watched employment report showed that U.S. payrolls fell for the first time in four years. The weaker-than-expected jobs report was widely seen as putting more pressure on the Federal Reserve to reduce interest rates. Not all of the week's economic news was downbeat, however, as worker productivity increased at a faster-than-expected pace. For the week, the S&P 500 Index was to 1,454 (for a year-to-date total return of 3.79%). The yield of the 10-year U.S. Treasury note fell 17 basis points to 4.37%.

Payrolls slid unexpectedly
Nonfarm payrolls declined by 4,000 in August, the Labor Department reported Friday. Economists had been expecting an increase of 120,000. Reflecting weakness in the housing market, construction was among the sectors that suffered the heaviest job losses, with residential specialty trade contractors particularly hard hit. The anemic employment report, which included sharp downward revisions for the June and July payrolls as well, "will weigh more prominently than normal in the Federal Reserve's deliberations on monetary policy" when they next meet on September 18, remarked Vanguard economist Joseph H. Davis. The unemployment rate, which is based on a different survey than the one used for payrolls, remained unchanged at 4.6%.

Productivity, labor costs were better than expected
U.S. productivity grew by an annualized 2.6% in the second quarter, an upward revision from the Labor Department's preliminary estimate of 1.8%. The latest productivity figure exceeded economists' expectations and appeared to be a reassuring sign to inflation-watchers, as rising productivity can help restrain inflation. Also encouraging from an inflation standpoint, unit labor costs grew at an annualized 1.4% in the second quarter, slightly less than economists had expected and a significant downward revision from a preliminary estimate of 2.1%.
Beige Book survey reported tighter credit hurting housing sector
The Federal Reserve's anecdotal survey of regional economies, known as the "Beige Book," found that tighter residential mortgage lending standards are exacerbating problems in the housing sector. Banks reported to the Fed that the reduction in the availability of mortgages created "uncertainty about when the housing market might turn around." On the positive side, the report noted "modest to moderate" increases in retail sales and found that some regions were experiencing "particularly solid growth in tourist spending." The report suggested that inflation, on the whole, is under control, with most regions reporting "little change in overall price pressures."

Manufacturing growth slowed, service sector remained stable
Growth in the manufacturing sector declined in August. The Institute for Supply Management (ISM) Index of manufacturing decreased to 52.9 from July's 53.8, the second consecutive drop for the index. However, the index reading did remain above 50, suggesting that the manufacturing sector is still expanding, albeit at a slower pace. The ISM Non-Manufacturing Index, a gauge of economic activity in the service sector, remained at 55.8, unchanged from July. The August reading was slightly ahead of expectations, and the new-orders component of the index climbed 4.2 points.

Construction spending slipped
Construction spending in July fell 0.4%, much weaker than the 0.1% increase that economists had expected. Private construction spending slid 0.7%, hurt by a falloff in residential construction that reflected continued weakness in the housing market and that more than offset gains in nonresidential spending.

The economic week ahead
The coming week's economic reports should offer insight into varied aspects of the economy. Reports on the U.S. trade balance (Tuesday), consumer credit (Monday), retail sales (Friday), business inventories (Friday), and industrial production (Friday) are scheduled to be released.

Have a wonderful and successful week!

Cheryl Anderson
949-212-2903
http://www.stewartoc.com/